Around The World In Thirty Minutes
During my recent Road Warrior travels I was asked to give a sound bite version of the state of the economy here in North America and around the world. Here are some points and perspectives:
Tremendous imbalances of earnings, wealth and debt throughout the globe are being led by the U.S. The U.S. consumer and government are into deficit spending. If not brought under control it will increase attention of the international financial markets. This could create downward pressure on the U.S. dollar and a rise in interest rates here and with major trading partners such as Canada.
Monetary Policy Tightening Or Growth
Inflating pressure is building in the U.S. despite the government statistics. If these pressures intensify, will the Fed stop at 4.75 percent? Not likely. The short term Fed rates could go to 5.0 or 5.5 percent. The Euro zone is mired in slow growth with high deficits well above the 3 percent deficit maximum mandated and deficit totals 60 percent of GDP.
The price of oil is not far from a record high. Demand and supplies will be tight and weather or a terrorist event would trigger high energy prices which would weigh heavily on consumer spending.
The number of unsold houses is rising; however, they are below the levels in the housing crashes of the 1980s and 1990s. Don’t be surprised if the U.S. goes from a seller’s to a buyer’s market in the eight primary housing bubble areas of the country, which, when put together, would be between the fourth and fifth largest economy in the world.
China will experience growing pains because of disparity of wealth and unsustainable economic expectations of its populous. A banking system is a train wreck waiting to happen if certain conditions arise, which could cause social disorder.
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Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.
To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.
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